Expanding society one kW-hr at a time. Blogging on the economics of various electricity-generating technologies as well as their underlying physics.

Sunday, November 4, 2012

Summary of "Self-replicating economics"

Last week at work, I unfortunately had to sit through a
presentation by an economist outside our company who tried to give us a
'Crash Course in Economics for Engineers.' Whoah!

Have you ever watched or sat through a presentation by an
economist and had the thought jump into your head, "This person has just
completely talked themselves into a circle. They started out the sentence
explaining why inflation is good, and by the end of the sentence, they finished
with how deflation raises the value of the dollar and, hence, deflation is
good." Note: it scares me when economists ignore the
self-referential nature of economics calculations. In general, if you try
to ignore self-reference, it will show up and make you look like a fool. (For
example, thinking that government spending has a multiplier effect
greater than one.) It's better to just include the self-reference into the
calculation from the start. Physicists learned this years ago when they asked
the question: what is the charge on a bare-naked electron if there were no
vacuum polarization? Chemists had to ask this question when they were
studying the collective bonding effects in polar liquids like water. In both
cases, scientists resorted torenormalization theoryto remove
the infinities that would pop up. Every economist either needs to
understand renormalization theory or needs to take a few courses in biology,
i.e. the study of self-replication.

Here's what I
supposedly "learned" in that presentation:

(1) The business
cycle is cyclic, and the next peak will be in 2015. (Don't worry.
The business cycle is not predictable and is not sinusoidal. Many
people have shown this, but if you want proof that there is no such thing as a
business cycle, check out myFrequency
Analysis graph in one of my earlier posts. There is no one frequency that
stands out above the rest, except the junk at low frequency due to the overall,
non-cyclic trend of increasing GDP. So, don't believe anybody who predicts for
you when the next GDP peak will be, based off of when the last peak was and
based off of some seven/eight year cycle.)

(2) Economies
fluctuate about a steady-state growth rate. Steady-state growth is the
equilibrium point and oscillations about this point are nearly perfectly
sinusoidal. (Don't worry. This is false as well. There is no such thing
as the 'steady-state growth rate.' And as mentioned above, oscillations in the
real world occur at every conceivable frequency.)

(3) The economy is
a closed system because the money just keeps on circulating, so there's no need
for a Federal Reserve to keep printing money. (There's at least one
problem with these statement. First, the economy is not a closed cycle. It's
like an ever expanding spiral in which useful work is used to make more useful
work. Second, the amount of money in circulation should ideally increase as
the spiral gets bigger and bigger, i.e. as we make more and more power
plants. Money is simply a way of determining who gets to use what percent of
the useful work being generated from power plants. Theoretically, it
shouldn't matter how much money is in circulation, but in practice, most people
prefer that the prices of items they buy remain constant or decrease with time,
while at the same time, they prefer that the dollars in their bank accounts
increase with time. Ideally, there would be a non-profit agency within the
government that forces the Treasury to print or remove enough currency from
circulation in order to maintain 0% to 2% inflation in the average price of
useful work. Right now, that agency is Federal Reserve. But it isn't really a
part of the government and it hasn't been doing a good job over the last six
years because there are some confused economists on the Board of Governors who
think that the Federal Reserve can decrease unemployment by printing money and
giving that money to the government and Wall Street. While the Federal
Reserve system in the US has some major flaws, these flaws could largely be
fixed by adopting a rule-based system of when to print or remove money from
circulation, as has done by many countries, including Germany before the euro.)

Given the fact
that economics can be an extremely difficult to teach, the goal of this post is
to summary the main points I've made over the last few years in the area of
"self-replicating economics," i.e. the study of human-designed system
that can self-replicate nearly-independent of biological systems. My hope is
that economics can become a fairly easy subject to teach if instructors focus
on examples of small, self-replicating systems.

For
example, we have designed "oil/gas well, power plant, steel mill"
systems that can self-replicate nearly independently of other systems. In
other words, we can drill wells, build steel mills, build factories, build
vehicles, build turbines, and build power plants in ways such that the whole
system can self-replicate and grow. Unfortunately, the growth rate of this
"oil/gas well, power plant, steel mill system" has been decreasing
slowly over time (despite increases in technological know-how of the people designing
the systems) because the increase in technical know-how has not off-set the
increase in direct and indirect taxes on this system as well as the fact that
the oil/gas we drill for is often at lower and lower depths and that the
systems we design now are often more complicated in order to reduce the damage
on biological self-replicating systems.

I think that it's
important to focus on and teach all of the main components of a system that can
self-replicate independently of other systems. In other words, if you are going
to teach the subject of economics, don't focus just on small parts of the
system, such as hamburgers and soda. People, hamburgers and soda don't
represent a full system that can replicate. A full system might be:
traders, homes, clothing, police, politicians, cattle, goat, blacksmiths,
farmers, civil servants, teachers, chefs, horses, etc... Since the smallest set
of items in a self-replicating system that includes human is probably really
large, it might make sense to start with simple mechanical systems that are
complete and self-replicating. For example, in prior posts, I've discussed possible
examples of human-designed self-replicating systems, such as a self-replicating
wind turbine/factory systems andauxons,
which are self-replicating solar panel/factory systems. It's easy to talk
oneself into a circle if you don't study the entire self-replicating system.
For something as large as the world economy, I understand that it is difficult
to see what's really going on (i.e. self-replication), so what I normally try
to do when teaching economics is to simplify the economy down into its main
components so that one can see that economic growth is due to the fact that he
have design "oil/gas well, power plant, steel mill, turbine factory,
electronic equipment factory" systems that can self-replicate. Before we
designed these thermo-mechanical systems, economic growth rates were pretty
much confined to population growth rates (of plants and animals in the system.)
The goal of the remainder of this post is to summarize what I call the field of
"self-replicating economics," which is the study of complete, independent
systems that can self-replicate and grow.

(1) The purpose of
a "power plant / factory" system is to self-replicate as fast as
possible without damaging other self-replicating systems. The power plant is
just one component of the self-replicating "power plant /
factory" system. Whenever I stated previously that the purpose of a
power plant is to make more power plants, what I meant by "power
plant" was the entire "power plant / factory" system.

(2) For any
individual component in the system (such as the turbine factory or the steel
mill or the gas well or the natural gas combined cycle power plant), the
purpose of the individual component is to achieve a large, positive rate of
return on investment by making and selling products into a free, unsubsidized
market. Since the product from the power plant is electricity and has units of
useful work [kWh], we can say that the purpose of the power plant is
to obtain a large rate of return on useful work invested. A power plant should
generate much more useful work (i.e. electrical or mechanical work) than the
useful work consumed to build, maintain and fuel the power plant. The
power plant in the power plant system is like the mitochondria of a biological
cell.

(3) A wise
investor is an investor who owns a little bit of (or all of) each of the
components of a complete system that is capable of self-replicating.
This is what we mean by decreasing portfolio risk. If you own a natural gas
power plant, you run the risk of an increase in the price of natural gas. But
if you own the gas well, the turbine factory, the steel mill and power plant,
then you own all of the components and all you need to do to increase your
wealth is to make sure that each of the components is communicating with the
other parts of the system. If you can't afford to own an entire
self-replicating system, then perhaps you could invest in 5% of a
power plant, 5% of a gas well, 5% of a turbine factory, 5% of a steel mill, and
5% of a electronic equipment factory that supplies the parts for the
power plant. A wise investor doesn't invest in just one of the pieces of the
self-replicating system. On the other hand, the wise invest should be smart
enough to know what is essential for the system to replicate (such as the
actual power plant and the factories that can build the components of the power
plant) as opposed to what is non-essential for the system to replicate (such as
gum, Facebook,Cabbage Patch Kids,
yachts, hotels in Greece,exercise
bikes, and Monet paintings.) Don't get me wrong. If you are wealthy because you
already know how to invest in self-replicating system, go ahead and purchase
these luxuries. Just make sure that you know the difference betweensystems that can self-replicateandluxuries.
Luxuries can't self-replicate; they are items that suggest to other people that
you know how to invest in projects that can self-replicate. However, people can
get into trouble when they mistake luxuries for systems that can actually
generate positive rates of return on useful work invested.

(6) If we
presently generate TWs of useful work, and if life forms (and their power
plants) have been increasing the amount of useful work as time has gone on,
then there was ultimately a point in time in which there was only a small
amount of useful work being generated by life forms. So, this begs the
question. When was the first generation of useful work? How did life arrive out
of non-life? How did the eternal cycle of growth begin? (i.e. how did the cycle
of constructing cells, storinguseful
work, spending useful work to search for food, generating useful work from
food, and then reproducing begin?) I'm interested in knowingwhat
sets of differential equations can produce growth of self-replicating
structures. (Please email me if you know of any work being done on
predicting when a certain set of differential equations yields self-replicating
structures. So far the only structures that I have only seen emerge out of
differential structures are stationary attractors, N-dimensional
limit cycles, andstrange
attractors.)

After having read
the bullets above and some of the previous posts at this website, you will
hopefully appreciate the simplicity of teaching economics when you focus on a
complete system that is capable of growing through self-replication. To teach
economics, it's important to pick a system that is not too small (i.e. does not
have all of the elements required for growth) and not too large (i.e. has
components that are non-essential and just add to the complexity of the system
being taught.)

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Three Worlds, Three Mysteries

The Goal of this Blog

My goal is to communicate how life can expand and grow, both on this planet and on others. To grow, we need to obtain a large rate of return on investment from our power plants, so a main focus of this blog is on the economics of electricity generation and vehicle transportation.To summarize, the goal of life is to expand. Life requires mechanical or electro-chemical work to survive, and to grow, it requires a large, positive rate of return on work invested.

In other words, the purpose of a power plant is to make more power plants, and as quickly as possible.

After a series of posts on the topic of energy policy and economics, I thought that it'd be a good time to take a break and delve back i...

Good quotes

"The [engineer] should be equipped with knowledge of many branches of study and varied kinds of learning, for it is by his judgement that all work done by the other arts is put to test. This knowledge is the child of practice and theory."

Marcus Vitruvius Pollio, De Architectura, (~15 BC)

"The fact that the Standard Model of Physics has just enough complexity to be able to accommodate CP violation does not shed any light on the true nature of this phenomenon, and we feel the conclusion of J. Cronin's 1980 Nobel speech still stands: 'We must continue to seek the origin of the CP symmetry violation by all means at our disposal. [...] We are hopeful, then, that at some eposh, perhaps distant, this cryptic message from nature will be deciphered.' (Cronin, 1981) --Marco Sozzi, 2008, from the Coda of Discrete Symmetries and CP Violation

"Knowledge is power."

"Lastly, I would address one general admonition to all; that they consider what are the true ends of knowledge, and that they seek it not either for pleasure of the mind, or for contention, or for superiority to others, or for profit, or fame, or power, or any of these inferior things; but for the benefit and use of Life; and that they perfect and govern it in charity."— Francis Bacon

"Dare to be an optimist."

—Matt Ridley

"Stretch the range of human powers...Give us new metaphors with which to puzzle out our mysteries...Give us pride and higher aspirations...Turn our trash into treasure...Give us goals and meaning...Give us new tools with which we can connect...Validate us in our moments of confusion...Give us new rituals to make sense of our day...Give us new levels of reality...Give us your soul and bare your emotions...Give us new tools of understanding...Turn luxuries into everyday commodities...Warn us of our failings, of our conplacency, or our alternatives and of our dangers...Help us serve a purpose higher than ourselves."

—Howard Bloom, The Genius of the Beast

“Progress is possible only when people believe in the possibilities of growth and change. Races or tribes die out not just when they are conquered and suppressed, but when they accept their defeated condition, become despairing, and lose their excitement about the future.”—Norman Cousins

"If I had to choose a religion, the sun as the universal giver of life would be my god."— Napoleon Bonaparte

"Knowledge is of no value unless you put it into practice."— Anton Chekhov

"There is only one good, knowledge, and one evil, ignorance."

"Let no one ignorant of Mathematics enter [the Academy]."

— Plato/Socrates

"Perhaps the only goal on earth to which mankind is striving lies in this incessant process of attaining, in other words, in life itself..."

— Narrator of Dostoevsky's Notes from the Underground

"The physical holds no power over destiny."

—Norman Paperman

"Nature is not solely physical, even though everything in it must depend on the physical. Nature includes not only physical entities but complex material organizations, mathematical lawfulness, possibilities, life, need, behavior, intelligence, purpose, societies, minds, meanings, signs, and knowledge."

— Lawrence Cahoone, "The Orders of Nature"

"All men by nature desire knowledge."— Aristotle

"Worrying is praying for something that you don't want. So stop worrying!"

—Bhagavan Das

"Keep your head above the water and bet on the growth of your country."— Henry Flagler of Standard Oil

"Society will develop a new kind of servitude which covers the surface of society with a network of complicated rules, through which the most original minds & and the most energetic of characters cannot penetrate. It does not tyrannize, but it compresses, enervates, extinguishes & stupefies a people until each nation is reduced to nothing better than a flock of timid & industrious animals, of which the government is the shepherd."

"Socrates: 'Now, that which imparts truth to the known and the power of knowing to the knower is what I would have you term the idea of good, and this you will deem to be the cause of science, and of truth in so far as the latter becomes the subject of knowledge; beautiful too, as are both truth and knowledge, you will be right in esteeming this other nature as more beautiful than either; and, as in the previous instance, light and sight may be truly said to be like the sun, and yet not the sun, so in this other sphere, science and truth may be deemed to be like the good, but not the good; the good has a place of honor yet higher.'Glaucon: 'What a wonder of beauty that must be, which is the author of science and truth, and yet surpasses them in beauty; for you surely cannot mean to say that pleasure is the good?'

Socrates: 'God forbid, but I may ask you to consider the image in another point of view.'

Glaucon: 'In what point of view?'

Socrates: 'You would say, wouldn't you not, that the sun is not only the author of visibility in all visible things, but of generation and nourishment and growth, though he himself is not generation?'

Glaucon: 'Certainly.'

Socrates: 'In like manner, the good may be said to be not only the author of knowledge to all things known, but of their being and essence, and yet the good is not essence, but far exceeds essence in dignity and power.' "